This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Gas prices will impact bottom lines

Doreen Muzzi | Feb 02, 2001

On top of other negative pressures on slim profit margins With planting season just around the corner, farmers are faced with increasing fuel and fertilizer prices at a time when market conditions are already applying negative pressure to slim profit margins.

In addition to increasing input costs for nitrogen fertilizer and gas-fueled irrigation pumps, the USA Rice Federation is among those groups reporting what could be widespread shortages of nitrogen fertilizer in 2001.

"There is a fear that nitrogen products may get hard to find this spring," says Willard Sparks, chairman of Sparks Companies, Inc. in Memphis.

The Rice Federation says, "At this time it is difficult to obtain quotes from U.S. suppliers, but when quoted, fertilizer prices are running as high as $250 per ton."

To make matters worse, U.S. ammonium nitrate fertilizer manufacturers have filed a petition with the U.S. International Trade Commission claiming economic harm from imports from the Ukraine. This is also referred to as "dumping."

"With a shortage of nitrogen fertilizer in the country and some manufactures deciding to sell their stocks of natural gas rather than produce the needed fertilizer, there does not appear to be economic injury," the Rice Federation reports.

The rice commodity group says two longtime friends to the industry Reps. Marion Berry (D-Ark.) and Jo Ann Emerson (R-Mo.), have sent a joint letter to the Commerce Secretary and the U.S. International Trade Commission Chairman indicating the manufacturers' claims are unfounded.

The letters from Reps. Berry and Emerson challenge the dumping claims and ask for governmental agencies to work toward a policy that gives the American farmer an adequate supply of fertilizer

What's happening in the petroleum industry is affecting the grain and cotton markets, as well as producers, Sparks says.

In early 1999, the United States oil industry was drilling about 496 rigs, of an estimated worldwide total of about 1,200, according to Sparks. "The oil industries were about to go bankrupt. But then, crude oil went from $10 to $30 and we went from 500 oil rigs to about 1,110 oil rigs in the United States."

"Price works in the oil industry just like it does in the agricultural industry. When you pay someone more, they start to work more of what they have, whether its oil rigs or row crop acreage," he says. "There's been a tremendous increase in oil production capacity throughout the world. We are now making plenty of oil. There's still not enough natural gas, however, because it is more difficult to import. The only way to import natural gas, really, is to import urea. So, we're really not going to have a big surplus for awhile."

The demand for natural gas is not going to slow down, either, Sparks says. Many power companies are moving to gas fired utility plants, with 30 plants currently on the drawing board in the United States. Cold weather across the country has also zapped natural gas supplies this winter.

"It is pretty difficult for a fertilizer company to make fertilizer out of $10 gas, so a tremendous amount of plants shut down early. Unless they could advance sell their fertilizer products, most fertilizer plants did not make the surplus amount they usually make in January, February and March. They simply can't afford to carry it or store it at these higher price levels," Sparks says.